For many families, the concept of “generational wealth” is central to their financial planning. It’s about more than simply accumulating assets during a lifetime — it’s about ensuring those assets provide security, opportunity, and legacy for children, grandchildren, and future generations.
But as governments worldwide continue to reform tax systems in response to economic pressures, the way wealth is transferred between generations is facing greater scrutiny. From inheritance taxes in the UK, succession duties across Europe, to estate taxes in the U.S., generational wealth transfer has become one of the most complex and heavily taxed areas of financial planning.
This blog explores what generational wealth tax is, why it matters, and the strategies that families can consider to protect their legacy.
What Is Generational Wealth Tax?
“Generational wealth tax” isn’t one single tax. Instead, it refers to the collection of taxes and duties that apply when wealth is passed from one generation to the next. These can include:
- Inheritance Tax (IHT): Levied in the UK at 40% above the nil-rate band (£325,000 per individual).
- Gift and Succession Taxes: Common across EU jurisdictions, with rates and allowances varying dramatically by country and region (e.g. Spain, France, Portugal).
- Estate Tax (U.S.): Applied to estates above federal and state thresholds.
- Wealth and Solidarity Taxes: In some jurisdictions, these apply annually, reducing the size of the estate available for transfer.
For high-net-worth individuals, the impact can be significant: without planning, as much as 40–50% of accumulated wealth could be eroded before it reaches the next generation.
Why Governments Are Targeting Generational Wealth
Policymakers argue that taxing wealth transfers helps redistribute resources and address inequality. With ageing populations and increased pressure on public finances, these taxes are also seen as a way to raise revenue without increasing income tax.
Recent trends show governments tightening loopholes and closing long-standing exemptions. For example:
- UK: From April 2027, most unused pension funds will be included in estates for IHT purposes — a major shift for families relying on pensions as a vehicle for passing wealth.
- Spain: Succession and gift tax rules vary by region, but in some cases transfers between parents and children can face rates of over 30%.
- France: Lifetime gift allowances are generous but can only be used every 15 years, making timing critical.
- U.S.: The federal estate tax exemption is set to fall from $13.61m (2024) per person to around $6–7m in 2026 unless new legislation extends the current rules.
The message is clear: governments are watching wealth transfers more closely than ever.
The Challenges for Families
Families face a unique set of challenges when thinking about generational wealth:
- Complex Rules Across Borders
Many HNW families are international, with members living, working, and inheriting across multiple countries. Double taxation treaties may help, but navigating conflicting regimes requires expertise. - Timing of Transfers
The decision of whether to gift during a lifetime or pass wealth through an estate can have dramatically different tax outcomes. - Asset Liquidity
Illiquid assets such as property, private businesses, or art collections can create tax liabilities without providing the cash to pay them. - Changing Legislation
Rules can change quickly — what is efficient today may be penalised tomorrow. Long-term planning must remain flexible.
Possible Strategies to Help Protect Generational Wealth
While every family’s circumstances are different, there are common strategies that can help reduce the tax burden and ensure wealth passes as intended.
1. Use Lifetime Gifting Wisely
Many countries provide exemptions or allowances for lifetime gifts. Structuring transfers over time can significantly reduce the taxable estate while also allowing families to witness the impact of their generosity.
2. Consider Trusts and Foundations
Trusts, foundations, and similar vehicles can provide long-term control, asset protection, and tax efficiency. These must be carefully structured and compliant with relevant laws, but they remain powerful tools for succession.
3. Plan for Pension Changes
With the UK’s 2027 pension reform, it is no longer safe to assume pensions are outside the scope of IHT. Families may wish to consider reviewing pension structures, beneficiaries, and potential trust arrangements.
4. Review Cross-Border Exposure
For international families, understanding which country has taxing rights is critical. Double taxation treaties, residency tests, and domicile rules all play a part in determining liabilities.
5. Protect Family Businesses
Succession planning for privately held companies is essential. Some jurisdictions offer reliefs (such as UK Business Relief) but these can be complex and subject to conditions.
6. Combine Financial and Emotional Goals
Tax efficiency is important, but so is fairness, family harmony, and clarity. Formalising plans through wills, letters of wishes, and family governance frameworks can help avoid disputes and ensure values as well as assets are passed on.
The Role of Professional Advice
Generational wealth planning is one of the most technical areas of financial advice. It requires not only understanding tax implications, but also the family dynamics, cross-border considerations, and long-term investment strategies.
A professional adviser can:
- Assess your exposure under current and future tax rules.
- Model different scenarios for gifting, trusts, and estate planning.
- Coordinate advice across jurisdictions.
- Provide ongoing reviews to adapt to legislative changes.
For many families, the cost of advice is outweighed many times over by the tax savings and peace of mind it provides.
Conclusion: Preserve More, Pass On More
Generational wealth tax is no longer a niche concern for the ultra-wealthy. With thresholds tightening and new reforms on the horizon, families who delay planning could risk seeing significant portions of their wealth lost to taxation.
By acting early, structuring wealth appropriately, and seeking expert guidance, it is possible to preserve more of what you’ve worked so hard to build — potentially supporting your loved ones for generations to come.
If you are thinking about the future of your wealth and how best to protect it for your family, you can speak to one of our advisers about creating a tailored generational wealth plan that gives you clarity, control, and confidence.
Contact us today to arrange a confidential consultation.
This communication is for informational purposes only based on our understanding of current legislation and practices which are subject to change and are not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. Investing involves risk. The value of investments can go down as well as up, and you may not get back the amount originally invested. Past performance is not a reliable indicator of future results. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions
This communication is for informational purposes only and is not intended to constitute, and should not be construed as, investment advice, investment recommendations or investment research. You should seek advice from a professional adviser before embarking on any financial planning activity. Whilst every effort has been made to ensure the information contained in this communication is correct, we are not responsible for any errors or omissions.
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